Displaying items by tag: LafargeHolcim
Update on Indonesia in 2019
06 November 2019Semen Indonesia’s third quarter results this week give us a reason to look at one of the world’s largest cement producing countries, Indonesia. As the local market leader, Semen Indonesia’s financial results have been positive so far in 2019 following its acquisition of Holcim Indonesia at the start of the year. Analysts at Fitch noted that gross margins for Semen Indonesia and its rival Indocement grew in the first half of 2019 as coal prices fell and cement sales prices rose.
Sales volumes, however tell a story of local production overcapacity and a move to exports. Domestic sales volumes fell by 2.05% year-on-year to 48.8Mt in the first nine months of 2019. Cement and clinker exports nearly compensated for this by rising by 15.4% to 4.8Mt. This is brisk growth but slower than the explosion of exports in 2018. Semen Indonesia’s local sales from its company before the acquisition fell faster than the national rate at 4.9% to 18.7Mt. The new sales from Solusi Bangun, the new name for Holcim Indonesia, partially alleviated this. It’s been a similar story for HeidelbergCement’s Indocement. Its sales revenue and income have risen so far in 2019. At the mid-year mark its sales volumes fell by 2.3% year-on-year to 29.4Mt.
Graph 1: Indonesian cement sales, January – September 2019. Source: Semen Indonesia.
Geographically, Indonesia Cement Association (ASI) data shows that over half of the country’s sales volumes (56%) were in Java in the first half of 2018. This was followed by Sumatra (22%), Sulawesi (8%), Kalimantan (also known as Indonesian Borneo, 6%), Bali-Nusa Tenggara (6%) and Maluku-Papua (2%). By cement type the market is dominated by bagged cement sales. It constituted 74% of sales in September 2019. The main producers have been keen to point out growth in bulk sales as its share has increased over the last decade.
Graph 2: Indonesian cement sales by type, 2010 – 2019. Source: Semen Indonesia/Indonesia Cement Association.
Previously the main story from the Indonesian market has been one of overcapacity and this has continued. It had a utilisation rate of 70% in 2018 from production volumes of 75.1Mt and a capacity of 110Mt, according to ASI data. This was likely to have been a major consideration in LafargeHolcim’s decision to leave the country and South-East Asia (see GCW379) with no end in sight to the situation in the short to medium term. At the end of 2018 it felt like consolidation was in progress following this sale and the reported sale of Semen Panasia. So far though this has been all and perhaps the upturn in the second quarter might buy the producers more time.
As mentioned at the start, another aspect of the Indonesian market deserving comment is that it is one of the first countries with a large cement sector where a Chinese company has made a significant entry. Conch Cement Indonesia, a subsidiary of China’s Anhui Conch, became the third largest producer following the acquisition of Holcim Indonesia. Semen Indonesia and Indocement control 70% of local installed capacity across both integrated and grinding plants with 51Mt/yr and 25.5Mt/yr respectively.
Conch Cement Indonesia is the next biggest with 8.7Mt from three integrated plants and a grinding unit. It’s in a tranche of three smaller producers locally, along with Semen Merah Putih and Semen Bosowa. Fitch also picked up on this in a research report on the cement sector published in August 2019. It pointed out that, although Holcim Indonesia and Indocement had gained pricing power through their leading market share, this is being eroded by local producers owned by Chinese companies.
Depending on how you look at it, Indonesia has the ‘fortune’ to be only the second largest producer in South-East Asia, after Vietnam. China, the world’s largest producer, is not too far away either. As can be seen above this can be a mixed blessing for local producers as the market changes. Overcapacity abounds, a major multinational has moved out, a local firm has consolidated the market as a result and Chinese influence grows steadily. Indonesia could well be an example of things to come for other markets.
Jordan: 21.8% state-owned Jordan Cement, 50.3% subsidiary of LafargeHolcim, has laid off 200 of its 550 employees after incurring losses of US$87m in the nine months to 30 September 2019. Reuters has reported that the company, whose 2018 losses were US$48.9m, up by 4.0% year-on-year from US$47.0m in 2017, made the sackings ‘to ensure its continuity,’ according to Jordan Cement CEO Samaan Samaan. The company has operated a single line at its 2.0Mt/yr integrated Rashadiyah cement plant since the closure of its 2.0Mt/yr Fuhais plant in 2013. The country’s 9Mt/yr-capacity cement sector serves a domestic demand of 4Mt/yr.
Cement supply spat in Australia
30 October 2019The Australian cement supply spat calmed down a little this week with the announcement that Wagners Holdings has agreed to resume the supply of cement products from its Pinkenba grinding plant in Brisbane to Boral. Legal proceedings are still on-going with a trial date set at the Supreme Court of Queensland in late November 2019.
The argument blew up publicly in March 2019, when Wagners said it had suspended its cement supply to Boral for six months. Wagners has a cement supply agreement with Boral whereby it supplies cement on an annual basis for a fixed price. However, Boral informed Wagners that it had found cheaper cement from a ‘long established’ supplier in South East Queensland. Local press speculated that this ‘long established’ supplier was Cement Australia, the joint venture between LafargeHolcim and HeidelbergCement. Wagners then had the choice to either match the lower price or suspend its supply. The disagreement took the legal route as the parties failed to reach an agreement. Wagner says that its cement supply agreement with Boral ‘remains binding on both parties’ until 2031.
Wagners later reported that it expected the suspension to cost it around US$7m in 2019. The deal with Boral constituted about 40% of its cement sales volumes. Its overall revenue grew year-on-year in its 2019 business year to the end of June 2019 but its cement sales volumes fell. Its earnings also fell. This was blamed on higher activity in lower margin areas such as contract haulage and fixed plant concrete, and delays in major infrastructure project work in South-East Queensland.
Boral, meanwhile, suffered from falling revenue and earnings from its Boral Australia subsidiary in its financial year to June 2019 due to a slowing construction market. Notably, its cement sales revenue rose by 7% due to ‘favourable’ pricing, higher volumes and cost-saving programs. It didn’t say whether the cost cutting included sourcing cement from a different supplier! All of this though was counteracted by lower contributions from its Sunstate joint venture (JV) with Adelaide Brighton and higher fuel and clinker costs.
All of this is fascinating because these kinds of disputes usually remain out of the public eye. The large size of Wagners’ cement supply deal with Boral meant that when it was threatened it likely had to tell its shareholders due to the potential financial impact. Whether Boral can wriggle out of the contract is now a matter for the courts.
The broader picture is that even though Boral Australia’s cement division seemed to be growing in its 2019 financial year it was still trying to reduce its costs in the face of a decelerating construction market. Added to this, the companies hold both a supplier and a competitor relationship. On the production side Boral operates an integrated plant at Berrima in New South Wales (NSW), a grinding plant at Maldon, NSW and another grinding plant in its Sunstate JV at Brisbane, Queensland. Wagners runs its own grinding plant at Pinkenba, Queensland. Both companies operate concrete plants. This is not unusual for a concentrated industrial sector like cement but it creates problems for the regulators. Note that, also this week, the Australian Competition and Consumer Commission was reportedly paying attention to the links between Barro Group and Adelaide Brighton. Barro owns a 43% stake in Adelaide Brighton but the authorities are concerned about a possible overlap in the two companies’ roles as suppliers of cement, concrete and aggregates. Any slowdown in construction in Australia seems likely to heighten these kinds of issues.
LafargeHolcim publishes third quarter trading update 2019
30 October 2019Switzerland: LafargeHolcim has recorded a fall in third-quarter net sales of 3.0% year-on-year to Euro6.46bn from Euro6.68bn in 2018 and a fall of 2.1% year-on-year in 2019 to Euro18.3bn in nine-month net sales to 30 September 2019 from Euro18.7bn in the corresponding period of a 2018. Earnings before interest, taxes, depreciation and amortisation (EBITDA) grew by 0.8% year-on-year to Euro1.71bn in the third quarter of 2019 from Euro1.69bn. EBITDA in the nine months to 30 September 2019 grew by 4.4% to Euro4.12bn from Euro3.95bn. The company said that it improved its margin in the Europe, North America and Asia Pacific regions, with localised profit growth in the Middle East Africa region in South Africa, Jordan and Iraq. Profitability in Latin America stabilised, with price management partially mitigating the challenges of several markets and a good performance in Colombia.
Based on the results, LafarageHolcim has reaffirmed its commitment to increase net sales by 3-5% year-on-year to between Euro25.6bn and Euro26.2bn in 2019 from Euro24.9bn in 2018, and to reduce the ratio of its net debt to recurring EBITDA to ‘well below’ two to one.
LafargeHolcim partners with Russian Direct Investment Fund
22 October 2019Russia: Swiss-based LafargeHolcim has signed a cooperation agreement with the Russian Direct Investment Fund (RDIF) for the purposes of supporting market growth and attaining to international quality, sustainability and energy efficiency standards. Contify Investment News has reported that LafargeHolcim, whose total integrated capacity of 9.4Mt in Russia is spread across four plants, will receive equity co-investments for projects from the Russian sovereign wealth fund. Maxim Goncharov, CEO of LafargeHolcim Russia, said that the partnership facitates the company’s global expertise "in solving target issues related to the industry’s and society’s development,” such as the co-processing of waste as a substitute fuel.
Lafarge Slovenia applies for reissue of Trbovlje permit
21 October 2019Slovenia: Swiss-based LafargeHolcim’s Slovenian subsidiary Lafarge Slovenia has submitted an application for an environmental permit for its 0.5Mt/yr Cementarna Trbovlje grinding plant. Business News Europe has reported that the company hopes to resume grinding, storage and dispatch at the facility, which went out of operation after losing its environmental permit in late 2014. “The plant will no longer produce raw materials itself, but source them from elsewhere, along with other cement additives,” said operations manager Čeprav Delo.
LafargeHolcim steps back from BASF Construction Chemicals bid
10 October 2019Germany/Switzerland: LafargeHolcim has dropped a bid for BASF Construction Chemicals due to pricing issues, according to sources quoted by Bloomberg. The heavy building materials producer was also concerned about the length of the sale process and issues concerning integrating it into the group.
Global Cement and Concrete Association launches research network
10 October 2019UK: The Global Cement and Concrete Association (GCCA) has launched ‘Innovandi,’ a research network between industry and scientific institutions. The network intends to research the areas of process technology, including the impact of co-processing, efficiency of clinker production and implementation of CCUS/ technologies, and products. This will include the impact of clinker substitutes and alternative binders in concrete, low carbon concrete technology and improve the understanding of CO2 reduction through re-carbonation.
“Our industry is fully committed to taking action to reduce CO2 emissions. As such, Innovandi is an industry led initiative and will bring together the best minds from all corners of the cement and concrete world, academia and business. Together we will truly collaborate on a global scale and use our expertise to find new ways of working and developing effective innovations,” said Benjamin Sporton, the chief executive officer (CEO) of the GCCA.
24 companies from the cement and concrete industry, including cement and concrete manufacturers, admixture specialists and equipment suppliers, have committed to the initiative, with scientific institutions and additional companies set to join as its work begins work. These include Buzzi Unicem, Cementir Holding, Cementos Argos, Cementos Molins, Cementos Pacasmayo, Cemento Progresso, Cemex, CNBM, Chryso, CRH, Dalmia Cement, FLSmidth, Grupo Cementos de Chihuahua (GCC), GCP Applied Technologies, Mapei, HeidelbergCement, LafargeHolcim, Nesher Israel Enterprises, SCG Cement, Titan Cement, Refratechnik Cement, Sika Technology, Subote New Materials and Votorantim.
As part of the new initiative, the GCCA also intends to establish an annual Innovandi global conference to promote collaboration on innovation and research in the sector.
India: LafargeHolcim and HeidelbergCement have joined a bidding war for Emami Cement. LafargeHolcim is reported to have submitted an expression of interest via its subsidiary Ambuja Cement, according to the Hindu newspaper. HeidelbergCement has submitted its bids through HeidelbergCement India. Emami Cement has an expected value of around US$845m. Nuvoco Vistas Corporation, Shree Cement and Dalmia Bharat have also been linked to the sale.
Emami Cement operates a 2.5Mt/yr integrated plant at Risda in Chhattisgarh and a 2.5Mt/yr grinding plant at Panagarh in West Bengal. It acquired a 0.6Mt/yr grinding plant at Bhabua, Bihar in September 2018. In addition, the firm has mining assets in Guntur in Andhra Pradesh and near Jaipur in Rajasthan. Its main markets are in West Bengal, Chhattisgarh, Odisha, Jharkhand, Bihar, Maharashtra and Madhya Pradesh. It markets its products under the Double Bull brand.
Lafarge Zambia chief complains of overcapacity and competition
07 October 2019Zambia: Jimmy Khan, the chief executive officer (CEO) of Lafarge Zambia, has complained about production overcapacity and competition to the president of Zambia. He said that local cement consumption is 2.2Mt/yr compared to production of 5Mt/yr, according to the Lusaka Times newspaper. He made the visit to the president of the country to inform him of a 25% rise in the price of cement. Khan blamed the price hike on business losses.
However, Khan praised the government for its infrastructure development and said that the subsidiary of LafargeHolcim has moved much of its despatches from road to railway. At present the cement producer has a 33% market share. It also intends to continue using the Mpulungu Port in Northern Province to export cement to the east African market.